The International Civil Aviation Organization (ICAO) has said that the cost of the coronavirus to worldwide airline revenue could top $5bn. The tourism impacts of reduced Chinese travel is predicted to hit markets in Japan and Thailand the hardest, with over $1bn in revenue estimated to be at risk in both countries. In the meantime, Chinese airlines are rushing to refinance their fleets in order to secure liquidity for their businesses during this difficult time.

An estimated revenue drop of $5bn

The outbreak of coronavirus, or COVID-19, has seen airlines all over the world canceling flights and dropping services as the world attempts to stem the spread of the deadly illness. Foreign carriers have stopped flying to mainland China, while Chinese airlines have been forced to slash services as demand for flights has plummeted.

The International Civil Aviation Organization (ICAO) has estimated that the situation could lead to a drop in global airline revenue of some $4-5bn as a result. The agency stated that as many as 70 airlines have completely canceled all international flights in and out of China, while 50 more have significantly reduced operations.

This equates to a loss of up to 20 million seats over the first quarter of 2020 compared to expectations. This is a drop of around 40%. This, says ICAO, translates to lost revenue of as much as $5bn. In a statement released yesterday, the ICAO said,

“Prior to the outbreak, airlines had planned to increase capacity by 9% on international routes to/from China for the first quarter of 2020 compared to 2019.

“ICAO’s preliminary estimates indicate that the first quarter of 2020 has instead seen an overall reduction ranging from 39% to 41% of passenger capacity, or a reduction of 16.4 to 19.6 million passengers compared to what airlines had projected. This equates to a potential reduction of USD 4 to 5 billion in gross operating revenues for airlines worldwide.”

Flight reductions and service suspensions are estimated to account for an 80% reduction in foreign airline capacity and a 40% reduction from Chinese airlines. ICAO’s figures do not include cargo-only aircraft or any economic impacts on air navigation service providers or airports.

Japan could lose out on tourism

The reduction in Chinese air travelers is expected to hit Japan the hardest. ICAO says that Japan could lose some $1.29bn in tourism revenue over the first quarter of 2020. Coming in a close second is Thailand, which is expected to be down $1.15bn in tourism revenue.

Despite the coronavirus still being in its early stages, ICAO already believes its economic impact to be far greater than that caused by the SARS epidemic in 2003. The situation has been further exacerbated by the huge growth in Chinese air traffic and passenger travel that has occurred since 2003.

ICAO presented these estimations with the caveat that these are just preliminary forecasts and that the full extent of the damage coronavirus causes to aviation is yet to be seen.

Chinese airlines looking to refinance fleets

In other reports today, aviation leasing firm Avolon has told the Financial Times that Chinese airlines are keen to refinance their fleets in order to keep liquidity in their businesses. Head of the company, Domhnal Slattery, told the FT,

“When the airline industry is impacted, it tends to move quickly to preserve cash. That is what we are seeing here. The phones have started ringing. We’ve seen a dramatic step up of airlines reaching out to do sale and lease back transactions.”

He noted that the fleets of Chinese airlines and airlines of the surrounding companies were increasingly sitting on the ground, and that forward bookings had ‘dropped off the cliff’. As such, the cash positions of these airlines has been compromised.

Just yesterday, it was reported that Vietnam Airlines was taking a $10m weekly hit from the coronavirus. As such, it is looking to lease out some of its underused aircraft in a bid to maintain an income.

While the full extent of the impact of the coronavirus on aviation may take some time to become clear, what is crystal right now is that this isn’t going away any time soon. Airlines’ China flight suspensions are increasingly stretching into late March and beyond, and with no sign of the spread of the virus abating, this is a topic that will be in the headlines for many months to come.